Magazine

Commentary: This Medicare Bill Is No Remedy

November 30, 2003

Rarely have politicians worked so hard and satisfied so few. The massive Medicare bill now heading for a final congressional showdown attempts to hammer vastly different visions into one plan. The result is a monumental muddle. The plan fails to produce the kind of robust new government drug benefit that most Democrats wanted. Nor would it transform Medicare from a government-operated entitlement to a competitive managed-care system run by private insurers, as President George W. Bush and GOP lawmakers preferred.

The bill has skirted the critical question underlying every debate about health care: Who pays? Should the burden of rapidly rising health-care costs be borne mostly by taxpayers or shifted to the seniors that Medicare serves? Worse, the bill does little to control those costs, either now or in the future. The result: Either seniors will have to pay lots more, taxes will rise, or care will have to be rationed.

THE BILL'S CENTERPIECE -- a new $400 billion drug insurance plan -- will certainly aid some seniors who now do without valuable medications. But few consumers would voluntarily choose such peek-a-boo coverage, which requires beneficiaries to pay the first $275 in annual drug costs, then covers 75% up to $2,200. Then no coverage is provided at all until $3,600 is reached, after which Medicare picks up 90% of the tab once again.

Despite Democratic angst that the bill is a death knell for traditional Medicare, the GOP's market reforms have been watered down to a limited six-city experiment that won't begin for seven years. "It's a tremendous lost opportunity," says American Enterprise Institute economist Joseph Antos. "If we don't have real competition, we don't have reform. We just have Medicare at higher payment levels."

That said, it's not clear that transforming Medicare into a private insurance system would reduce the overall costs of senior health care. Over the past 20 years, Medicare expenditures have grown at an annual rate of about 6.7% per enrollee -- roughly the same as private insurance for other large groups, such as federal workers (up about 6.5% a year) or California state employees (up 6.9%). One reason: While managed-care companies save money by making consumers more sensitive to costs, they also run up higher administrative and advertising bills. "The evidence is very mixed," says Stuart Altman, professor of health policy at Brandeis University.

MEDICARE COSTS are driven by the same factors that are sending all health expenditures through the roof. An aging population requires more care. And as technology makes treatments and tests cheaper and less invasive, more people use them, boosting overall costs. Cataract surgery, for instance, used to require hours in an operating room and three days of recovery in a hospital. Today, it's a 30-minute outpatient procedure and millions more people opt for it. As a result, Americans now spend $4 billion a year on such surgery.

Private managed-care plans can save money; we learned that in the 1990s. But they did it by limiting care -- and generated a patient revolt in the process. Today, private insurers hope to control costs through such relatively new techniques as disease management, where people at risk for chronic illnesses such as diabetes are helped before the problem gets out of hand. Another fix: negotiating lower drug prices.

BUT DISEASE MANAGEMENT techniques are still new and largely untested, especially with seniors. And government, with its massive buying power, could drive down drug prices at least as effectively as private insurers.

But the Medicare reform bill empowers neither insurers nor government to rein in costs. It does not allow Medicare to use its full muscle to lower drug prices. Instead, it piles on new costs. The measure increases subsidies for some low-income seniors and boosts payments to doctors, hospitals, and rural home-health services. Insurance companies would get billions in taxpayers dollars to make managed-care plans available to seniors. And the bill would hand out billions more to companies that continue to insure their retired workers.

At the same time, the bill shifts some costs away from the government. To get their new drug benefit, seniors would be required to pay a modest premium, starting at about $35 a month and climbing as prescription prices rise. And deductibles for Medicare Part B -- which covers doctor visits -- would rise from $100 today to $110 in 2005, and increase with program costs thereafter. In addition, wealthy retirees would have to pay substantially higher Part B premiums than they do now. But premiums will cover only about one-third of the cost of the new drug benefit -- taxpayers will pick up the rest.

The result: a drug subsidy that will cost at least $400 billion will be added to Medicare costs that will already top $3.5 trillion over the next decade. And those drug expenses could skyrocket to over $100 billion a year after that.

In the end, health costs can only be limited by curbing care. The challenge is to do that while improving the overall health of seniors. Old Medicare never did that very well. And the new version won't be any better. By Howard Gleckman